Starting a social impact fund: What it is and how it’s different from traditional investment funds
If you are interested in impact investing and are thinking of starting a social impact fund, it’s important to understand how it differs from traditional investment funds. Impact investing refers to investments made with the intention of generating measurable positive social or environmental impact, in addition to financial returns. This means that impact investors look beyond a company's financial performance and consider its social and environmental impact, such as its contribution to environmental sustainability, gender equality, healthcare, education, social justice, or poverty reduction.
A social impact fund is a specific type of impact investment vehicle that is designed to make impact investing more accessible to a wider range of investors. Social impact funds pool money from a variety of investors and use it to make investments in companies or organizations that have a mission to create positive social or environmental impact. By investing in a social impact fund, individual investors can achieve diversification and access to impact investments that may be difficult to access on their own.
Traditional investment usually involves investing in established companies that have a proven track record of financial success. In contrast, impact investing often involves investing in organizations or projects that are aligned with their social or environmental mission, even if these investments may not generate the highest financial returns. This focus on impact may mean that social impact funds invest in less traditional investments, such as startups, social enterprises, non-profit organizations or companies that are creating innovative solutions to social or environmental challenges.
Another key difference between social impact funds and traditional investment funds is the way in which success is measured. Traditional investment funds typically measure success solely in terms of financial returns, such as returns on investment or the performance of the fund compared to a benchmark. In contrast, social impact funds measure success in terms of both financial returns and social or environmental impact.
Overall, social impact funds represent a growing trend in the investment world, as investors increasingly look for ways to align their investments with their values and make a positive impact on society and the environment. Social impact funds are a powerful tool for advancing impact investing and creating positive change, while also earning financial returns.
Starting a social impact fund requires careful consideration of a range of legal issues and requirements. Working with experienced legal professionals who understand the unique challenges and opportunities of social impact investing can help you navigate these issues and set your fund up for success. We recommend that you speak to an attorney who can guide you through the process and ensure that your social impact fund is properly formed.
Legal Disclaimer: The information in this article is provided for general informational and educational purposes only. It is not intended to be legal advice and does not create an attorney-client relationship.